Transcripts For CNBC Squawk On The Street 20130823

This morning defended the way hisses change defended the outage. He added that he was, quote, proud of the fact that we had an orderly close. Guys, heres how its playing on the front page of paper it is people have not seen. Nasdaq in fresh market failure is the way the journal puts it across the top of the fold. Nasdaq paralyzed by technical breakdown is the ft. And then, jim, usa today, wall street yawns as nasdaq goes dark. I thought that was the most cogent of all. No one really cared. Bob said everything was good. They did a great job. Its fine. I want to let people know we speak with people around here. They all scoffed and laughed at that. Bob said what he did. I felt what i felt which was that the lack of communication was terrible. I had the unfortunate moment where i had to be on air and had to try to speculate. The way you cut back on speculation is to come out and say, guys, heres what we think is happening. We were all stuck trying to speculate because the communication was so bad. What do you make of his comments this morning, that those who needed to know knew what was going on. I dont know. Id kind of struck by the fact that why do we need all of these exchanges if they dont really help to get the prices. I didnt understand how Bertha Coombs pointed out, how did the etfs continue to trade . I dont get the sense that the s. E. C. Was willing to come out and say. The little guy just needs the b bid and ask. I dont think anyone is going to get hurt by this. No one is going to lose their job by it. Not even bob greifeld. I think he will be fine. Yeah. He said he was fine, therefore, hes fine. Im sensing some passive aggression here. Well, look, i, too, have been beaten by this. I want very much to say, look, i think this is outrageous. But you come when you listen, everybody seems to be fine with it. A lot of interviews, people are fine with it. No one seems to think this is bad. Bob said it was done right for retail and everyone is taking that at face value. I find it hard. Ive been in the business much longer than bob. Im a little jaded. A question about this because a lot of people are saying had they handled the restale and professional audience the same. Its not as if anyone on the retail side is trading directly with the nasdaq. If were all trading through schwab and amr trade, arent those the people who nasdaq is talking to ultimately . Theyre claiming only retail would get hurt by this. Lots of exchanges, lots of price discov discove discovery. Retail trades, it was the etfs who had to be the most corrupted by this because 20 of the etfs of these kinds of etfs had nasdaq prices. Who had those prices . Who had it. Someone did or else it was just we were just trading back and forth. It didnt matter. Everyone was equally wrong. Guys, breaking news. On top of all of this im getting word in my ear that steve bammer of microsoft is to retire. Wow. Really . This is all we have at this moment. Obviously its something thats been talked about, speculated about. Holy cow. Jim, im probably five or six years . Yesterday they said the about vis was going to play a role. Steve was a classmate of mine as i am. Im not ready to retire. Hes retiring young. I didnt expect this. I know theres a lot of pressure on ballmel to deliver. People believe he failed to deliver. I would like to think he left because hes done but this obviously is a shock. Its a shock. Shares up 6 on the news. How do you feel of a ceo, 6 up on the news that you might retire. What some of the unlocked value. Ballmer stood in the way. Retire as ceo in the next 12 months upon the completion of a process to choose his successor. In the meantime, the release says he will continue as ceo, leave microsoft through the next steps of trans formation to a devices and Services Company that empowers people to the activities they value most. Upgrade at omera. Interesting he said the activists are playing a role. The activists dont own that much. David faber has been tauing about that for some time. Obviously i believe there was a huge amount of pressure coming from outside that we didnt know. Him to leave . Yes. Yes. For him to leave. More than leveraging the offshore cash . Yes. And buying back stock . Yeah. I think that people are very disappointed with steve. The market is bigger than anybody, right . The market is saying, thank you. 8 . Did you see that . Up 8 premarket on microsoft shares on the news that hes going to retire. The market is speaking very loudly. A lo of people know steve but not quite like you do, something gone to school with him a very long time ago. Hes a great guy. I saw him at my 35th reunion president a the beg. Sometimes you had friends before you were in the money beusiness. We used to call him shoe box steve when we played poker. He would bring a big box of coin, very clever. When i was editor of the harvard crimson, hes a great guy but i know that doesnt matter. Its all about what have you done for me lately, like the nfl. New cfo. Is his legacy going to be one that he an executive who led the company into a dead end, into a path that had no future . I think that if the next guy cant get it turned around, i think well see, you know what, windows business. Had all that cash. I think about yesterday with meg whitman on our show. A lot of people were saying, meg, maybe the business is just terminal. Now, shes saying, listen, generating a lot of cash flow. Microsoft generated a lot of cash flow but the stock has done nothing. In the end, its the arbiter. These are about as belichick or parcells would say, these are a about ls and we need ws. Internal or external, does it make a difference . It makes a huge difference. We need a shakeup. You need what we have seen over and over again. You get somebody in with a fresh pair of eyes. When you have that much cash you should be able to reinvent yourself. Theyve got the resources to bid. Now, i did think there were a lot of things going on in the entertainment device business coming around. In the end they are a utility. They are a bust company. Ever since ballmer took on the justice department, its been downhill. The board appointed a special committee to direct the search. Theyve retained hydrocon struggles. Bill gates is on that committee. He will work with the board to identify a great new ceo. John fortt who knows it is with us. Im just surprised that they just did this 12 months sounds about right. Ballmer always resisted a lot of conversation about what he was going to do next and when. As you guys point out, its time to start thinking about successors. I personally think that microsoft is going to look at somebody with more of a technical bent for the next phase. Will have a lot of credibility in the Engineering Organization given the pace of change that they are looking at. I expect name is batted around quite a bit. Hes heading up a lot of cloud effort. Im not sure whether key lus name will come up. Hes into online efforts. Meyerson who is doing a lot of hardware stuff. But thats there now. Jon jon, its true, jon, right, they miss social, they miss mobile, late to the cloud. The wholly trinity, they were nowhere. Im curious, jon, they just did a reorg in which candidates like don matrik who left. This timing is a little bit of unusual. You know, the thing about that reorg that struck me is it really invalidated the power in the ceo seat. To do a reorg it points everything up to krrksceo and c over the ceo is interesting. Timingwise, we just even the name who would have been right at the very top of the names that we would be thinking about for the next ceo, you know, he used to run windows. He left. Hes now gone over to horowitz as a board adviser. Its a time when theres not one clear person, not the likes of a Steve Ballmer. The sort of suspicion that the board makes on who to put into that position is going to say a lot about microsoft what they can and cannot do in the years ahead. What did ballmer miss here . Theres yahoo google, facebook. Who did ballmer team up with for phones . Nokia. His cloud effort, that salesforce. Com. Where did they show leadership . I ask you, jon, where was microsoft on cutting edge postwindows . Well, you know, actually done some of the right things for addressing the enterprise. I mean, look at what theyve been able to do in server software. You look at their server and tool biggs usiness consistently for years. But as we said, mobile, social, online. And these are not areas where microsoft couldnt see big truck headlights coming down the track. They saw them. They had some friends in many cases but microsofts internal culture of competition where the knives are out in a lot of cases, where the company had a lot of trouble working together, really did it in turn after turn. The latest reorg was supposed to feel good for a lot of that to keep people protected. Thats going major challenge of the next ceo. Wow. 8 is a massive move. Theres the plus side on Steve Ballmer. That is hard to do on a name like that. Jon, thank you so much. Jon fortt with quick analysis on microsoft. Well have more on Steve Ballmer now officially retiring from the company within the next 12 months. Well talk about who might be in line to take that gig. And John Williams will talk about rates and tapering. Live from jackson hole. And also ahead, cfo of pandora and get his first reaction of that companys results last night. One more look at futures. What a week of news. For the time being, futures relatively tame. I turn ed 65 last week. I turn the math of retirement is different today. Money has to last longer. I dont want to pour over pie charts all day. I want to travel, and i want the income to do it. Ishares incomes etfs. Low cost and diversified. Find out why nine out of ten large professional investors choose ishares for their etfs. Ishares by blackrock. Call 1800ishares for a prospectus, which includes investment objectives, risks, charges and expenses. Read and consider it carefully before investing. Risk includes possible loss of principal. Its been talked about, speculated about for a very long time but it is now official. Steve ballmer, head of microsoft will retire within the next 12 months upon a completion to process to choose his successor. The stock is up almost 9 on that news. And hes obviously a long way from actually leaving but there was some unlock value of the actuality of him being gone. The piece yesterday, catch a big move. I dont think that rick did that as obviously we dont know. Rick ive known rick for almost as long as ive known ballmer. No inside information. I do want to point out that this stock is almost back to where it was before they reported the bad quarter that i think may have been a precipitating event. That was a terrible quarter. You can see that stock just they had to do something because they just did the reorder. One microsoft. Web that . Wrus have been that bad q. I did point out a guy did have the nokia phone. Theyve got a little bit of traction but too little too late. The person that had the phone was ballmer at my reunion. I saw it as an oddity. It looked good. Had a customer of one. The news flow on this friday morning in august does not stop because the Federal Reserve is holding a annual retreat in jackson hole, wyoming. They are discussing the future of Monetary Policy. Steve liesman is there and joins us now with a special guest. Steve . Thanks very must have. I am here with San Francisco fed president John Williams. John, thanks for joining us this morning. Weve had two other president s on this morning. One was kind of on the dovish side. Didnt think tapering was needed in september or he could wait and the other one said maybe we ought to go ahead. Do you want to break the tie . Well, in my view, this has to depend on the data. From my perspective, i think chairman bernanke laid out a reasonable approach back in the press con innocence after the june fmoc meeting. My view has basically followed more or less my expectations of how the economy would evolve since then. So im going to stick with what chairman bernanke said. He said the decision when and if to taper later this year will depend on the data. Specifically, are we still seeing signs of positive momentum in growth, in job creation . And we need to see inflation continue to edge back up towards our 2 longer run inflation goal. Theres not a lot of data between now and september. You think its okay to trip . Im not going to say about what meeting or not. But i do think if the data continue to progress as weve seen, then i do agree that we should edge down or taper or purchases later this year. Theres been some talk about what kind of move to make. A taper light or a taper regular, a taper heavy, i dont know. Like grades of gasoline or something. What is your sense of what increments would be the right ones to use . Well, i think, given that we stale have a long ways to go in terms of achieving a longer run goals, employment is still well above full employment levels. Inflation is still well below our 2 long run goal. I think, you know, i expect that well continue our purchases well into next year as the chairman said. Probably continue them until the middle of next year. So any tapering i think we would do would be in gradual steps over time. So whether thats light or heavy, i would see it as a gradual series of steps of tapering, assuming our forecast comes true. San francisco fed Research Department recently put out a letter, really doubting the effectiveness of quantitative easing. Does that reflect your views . I think its a Great Research product that my colleagues and the Federal Reserve has been working on for some time. Where their results were maybe a little bit different than others was not so much on the question of does quantitative easing effect financial conditions. I think theres overwhelming evidence that our policies as we put them in place and markets have seen we may be ending them, weve seen sizable movements. I think theyve been effective there. Open question is how much does the change in financial conditions generated by quantitative easing actually effect the real economy. How many jobs does it create. Its true, estimates were on the lower side of other estimates that people have seen. One thing they point out in the pap paper that i think is important if you do find quaund tative easing at the same time, for a long time so kind of a Forward Guidance up you get sizable effects. Let me ask you one more question and take a break. Ill bring it out later. The markets have risen by 100 basis points. Its guided that there would be some reduction in quantitative easing. Does the market have that wrong . Does the market are Interest Rates too high relative to what the policy rate is going to be . Its always hard to understand, you you know, what factors are driving the term premium, risk premium in market, bond market or stock markets and like that. I do my own interpretation is that there may have been some players in the market or traders or however you want to think about it, who were thinking the fed was going to keep buying forever. We always indicated thats not what our plan was. I think some of the adjustment in the bond market probably was kind of bringing people back to reality that this because program that wasnt going to continue forever and i think that may be limiting some of the fear in the bond market. Overall im not going to speak about whether the bond market is properly priced. John, if you might, stay right there. Send it back to headquarters or the New York Stock Exchange and, guys, well bring you more of this interview at 10 45 this morning your time. Sounds good, steve. Thanks so much. Great couple of days of coverage out of jackson hole. When we come back, more on the situation at the nasdaq. What it means for todays open in nine minutes. Plus, Steve Ballmer retiring from microsoft in the next 12 months. Futures might get some action on the dow. We are seeing a few more green arrows here on a friday morning. More squawk on the street from the nyse is straight ahead. 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Simon hobbs is over there giving us a sense of what the mood is is like. Good morning, carl. Robust performance from the ceo of nasdaq saying, a, hes very proud of what the team did yesterday despite the fact all the stocks were knocked out across the country for over three hours. The way in which they took their time to rebuild the market and open before the close means when we finally open again today, because we had 35 minutes of trade yesterday, theres no pent up kind of price discovery. More controversially he says hes disappointed about what happened yesterday and if anything, he seems to be trying to shift the blame down the road, i guess you could say, to the nyse. Yes, there was problem with their central computer, server, which transmits best bids and offers and trades around the country but we had a connectivity problem for that caused by a connectivity problem and by inference we think that is the nyse where you guys are with their Electronic System. Hes talking about defensive driving moving forward and the idea that basically their systems have to be more robust from things that happen around the rest of the eco system. Really t not many apologies today from the nasdaq. Guys, back to you. Certainly, steve, the news from Steve Ballmer, simon, is getting a bit of relief to the headlines focusing on this but people are going to continue to wait for more of an explanation as to what happened yesterday, as simon up at the nasdaq watching for us right now. The opening bell is moments away. Its going to be another big day of trading. Of course, weve got eyes on the opening bell here. Over at the nasdaq and plenty more coming up with squawk on the street. [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. 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Now, remember, if you buy the stock youre still going to have to deal with problematic quarter. Buy the stock right here its not like monday youre going to come in and name bill gates again. Well, before monday, at least. Depends on how much of that 8 , 9 jump here has to do with people pricing an not just a ballmer exit but to split up the company. Right. After talking to meg on this show 24 hours ago, you could envision a situation, jim, in a few years where dell, hp, microsoft, look very different and may be elements of all three or some in some other form together. They look like univac and honeywell. Those were the big players. They were revered. They were strong. They disappeared. Of course, the other big story well watch ndaq. The prospect longer term, jim, of fines, of regulation of lawsuits. Its a wall street story. It might no be a main street story. My problem with that is as we saw from the flash crash we keep losing people. We just keep losing people who want to be grasso was an old friend of mine. Listen, we need those people. We need those people because thats what that was about. They leave the building and they go to cds because they traded all day yesterday. See how the glitch is going to impact cd sgs. Theres the opening bell. S p at the top of your screen. A little better than recent days. Big board, office of Emergency Management honoring the nyse is the recipient of the private sector partner. Sandy last fall. They do a lot of great stuff. There were a lot of commentary from people yesterday saying, listen, when they reopen the market the market is going to go down. The anger of the bond market. The market didnt go down. 1 in the vix all day was down. How many people said, oh, when they open it, oh, boy, the sellers, the market on close, sellers. Sometimes you have a decent take, so to speak. How lucky did they get. People making the point, what would happen if the ballmer news came out while it closed. Would it have been to akin do to an after hours announcement or look at the etf space and try and fig out whats going on . Investment Management Firm first trust doing the honors over there. All good questions. No contest about what the biggest gainer on the s p is today, jim. No. No contest at all. Its microsoft. I guess i mean, look, it leaves you a little speechless. What it says is it really doesnt matter what you say. Heres the way we feel. This is a company where its been a very long time and people are fed up. I think its people fed up and they say, anybody anybody would do better than ballmer situation is what that market is what that stock is saying to you. We should keep in mind juan at hq saying the surge does not cover what microsoft lost after it posted the disappointed earnings on july. People thought they turned it around. A lot of people were snookered. Lets give you irony. Facebook over the level at nasdaq in 39. Geez, they throw a lot at you on a morning when i thought i was going to have the day off. You got that right. We do have some retail that we can chew on here, jim. Gap, 64 cents. That did match. Raise the fullyear outlook. Its almost binary with retail. You come in and miss and youre lower or come in and buy in and you raise. Ive been speaking with people in the business. Apparel is bad. Gap did this. Lets point out this. The two strongest players in apparel were gap were not gap but ross stores, which is up huge today. Yep. And tjx. What did they do . They buy apparel from the guy who is selling apparel. Who isnt who selling it. Inventory situation for them is incredible because all of these retailer whats are struggling are jumping into t. J. Maxx and ross stores and loving it. This is nirvana for the closeout guys. Thats why those are acting well. Obviously other than sears, people are buying home goods, home depot, and lowes. They keep saying, carl, no traffic, no traffic, no traffic. Was this a Tipping Point quarter where we decided to all do it online and therefore we dont need to go to the mall and the mall is the traffic, the interstate highway is empty so you dont browse at abercrombie while you may have been wanting to go to macys. Abercrombie, their turn yesterday. Today it was aeropostale. Much wider than the loss expected. How many days we have come in and you said the most difficult area to gain is teenage apparel. Now you can gain it. They dont want it. The dogs wont eat it. No matter what you advertise, the dogs wont eat it. To your point about traffic. Where did he wee the upside of traffic . Appliances. Sears. Wow. They are losing share there apparently but its the one thing that people wont necessarily buy online, right . Its a lot harder. A terrific article today in the journal about the edge with sears. And whirlpool, kenmore. Sears is where you bought the appliances when you grew up. You went to sears p. They had that guarantee you could return it. Obviously, they have seeded that to home depot and lowes. Pandora, a lot of home gamers want to watch this. Its off today. Second quarter profit if four cents. Double the estimate but the current outlook is weak. Jordan has an excellent piece out saying the content costs are going up. One thing we like about netflix is theyre blowing away the number of subscribers. That is not in pandoras case. Youve got apple coming into this space. Theyre just going to have such an impact on it. Those who are bullish pandora say the threat, the competitive threat is being overblown. You talk about your other players that you think is very strong in this area. Spotify. Netflix is not competitive. Netflix is hulu. Generous. And weve. Talking about the nasdaq all morning. We will continue to do so. You had simon on from irwin simon on. Do we have a sound bite . We do. Irwin reported mr. Simon, for the ceo of hane, natural food company, reported best yesterday. Froze the stock and i asked on mad money to irwin, what do you think about staying with the nasdaq given this . I think he had a pretty cogent response. Take a listen. The time to be in your Stock Exchange company . Hey, you know, listen, theres been a lot happening with nasdaq and pretty surprise that this happens. As a ceo i expect my stock to trade the whole day. Sounds like youre going to make some calls tomorrow. A day an earnings when youre t not trade for an hour and a half, you know, disappointing. Enough said. Disappointing. I know that irwin, he did not say, im moving over to the New York Stock Exchange today. I know the damage it has to do is going to have to reach out to the irwin simons and say you need to stay with us, its okay. A lot of people who are sitting a 40ehome trying to fig out what is happening to them, for nasdaq itself, what does it mean reputationally and how does it affect the decisions made by a lot of ceo snz. It was not hurt by the facebook debacle. The company is a bit of a teflon company. We can say whatever we want unless the sec comes out and says this is outrageous, which they didnt. Bob greifeld said it was the wrong thing to do to communicate with cnbc. Done so while they were closed yesterday. Come down and say me we figured out this, its this feed. Please stay patient. I think thats what the nfl would do with the super bowl or greifeld felt it wasnt his job, is it just nobodys job or the s. E. C. s to come out and say, listen, public, be careful. The etfs that you love to trade, a lot of them has nasdaq names. Youre trading with nothing. Maybe some had it and maybe some different. I think the etf rz the issue. And greifeld didnt address that. Simon is at the nasdaq this morning. Give us a sense as to how things are fairing on this friday morning. Simon . Weve opened successfully seven minutes ago. The likelihood was that it was going to be a smooth open. Precisely of course because yesterday it took them 30 minutes to work out what had gone wrong and then spent another two hours, three hours working with the rest of the industry to bring, they would say, the market back online successfully. You have that 35 minutes to trade yesterday. Stocks and the etfs and funds to get price discovery. Successful open here at the nasdaq. Whats interesting is the very aggressive pushback youre getting from greifeld, the ceo of nasdaq saying hes actually very proud of the way in which his team bought the market back online yesterday. Take a listen. We took the proper amount of time, right, to make sure that the testing was done, that the communication yesterday was so strong and we got that communication done, and we came back and came back successfully. So its not our job, nor will it be, for us to go on the press, you know, to the press to public while were focusing on the issue. What i think is a much more controversial position theyre taking, now the investigation fully gets under way into exactly what went wrong. You have this server that basically disseminates best price bid and offer to everybody else around the country for the nasdaq stocks. Thats what failed. Because people didnt have price discovery asked everybody to stop trading. The question is why did that not function. And nasdaq is saying we had a connectivity problem. Something external to nasdaq actually messed us up and we think were filling in the blanks now that its the nyse Electronic System four or five miles down the road where you guys are. Thats the inference that those kind of jolt was and we did the best we could. What theyre saying is were very disappointed in what happened. I dont hear an apology from greifeld. What hes talking about cleverly is the need to have defensive driving policies moving forward. Take a listen. I think where we have to get better is what i call defensive driving. So the systems are able to operate by themselves and this system has been in operation for 20 years. Defensive driving means what do you do when another part of the eco system, another player has some bad event that triggers something in your system . You have to and its our responsibility as systems operator to handle those kind of unforeseen situations. Its quite a clever pr message that theyve constructed around what went on yesterday. The only point i would make, guys, is i think its great disingenuous to then say, we were really worried the ordinary guys at homes, the moms and pops and orphans and widows wouldnt get pricing and we needed to shut down. The reason that didnt happen is because the nasdaq failed. Lets make not mistake. Back to you guys. Thanks for the recap. Speaking of the New York Stock Exchange, josh lipton is on the floor. Josh, what can you tell us . Seems like we are operating normally here today. Another frooif friday. Summer session. Talking to some of the traders down here like my friend ben willis of albert frooed, says you might feel hesitation before hitting that send button today but obviously the hope is we are back to normal. Now, if you look at the s p 500, your benchmark gauge, you are basically just positive on the week. Youre trying to avoid your first threeweek losing streak since may 2012. If you look at whats working this week, its really this years winners which had beening looing a little tired at the beginning of august. Thats transports, its biotechs, its banks. And its hmos. Also, i want to talk about some of the earnings from the retailers. I know you guys were talking about this aeropostale operating at a twoyear low here. Q3 gave guidance for the loss. The street was looking for a plus. Ceo talking about a challenging teen retail environment. Weak traffic trends. You also had foot locker reporting and, as well, and actually beat on the bottom. Came up a little bit short on the top. The ceo talking about a highly challenging and competitive environment. Im going to finish on ross stores. Ross beat on the bottom and the top. That ceo talking about ongoing uncertainty in the macro environment. Saying it was prudent to stay a little bit more cautious here near outlook. Some basically caution here from the retailers. Quickly, the levels traders are watching, scott weller of t3 live saying the bulls took back the 50 on the spx. If you can hold that maybe you can continue that bounce to 1670, 1674. Guys, back to you. Thanks so much. See you in a few minutes. Check on energy and commodities. Courtney reagan at the nymex today. Little Economic News from around the world to really move the commodities complex today. We know that earlier in the week crude oil under a little bit of pressure ahead of those fed minutes now they with have those minutes, we vrt of steadied out a little bit. Gotten a little bit of a bounce back yesterday but today crude Oil Futures Little change traders saying. Theres not a whole lot of incentive to move to the upside now that we think the tapering could be on the table in the relative future though. Of course, we dont know the exact timing. Also some supply coming back online from libya. So fundamentals certainly not pushing traders to want to be too long. It does feel like a summer friday. The volume is very, very right down here. And gold, gold a very quiet overnight session trading in about 9 range. Demand out of india and china, quiet. It will start to pick up in september and october when the wedding festival and weddings and other festivals start to kick in. Traders have their eye on labor day and beyond getting ready for the weekend. Court, thanks so much. Meantime, jim, i guess orderly close and according to greifeld, orderly open. Can i point out in terms of the organization that we are sitting at. Duncan is a old friend but the New York Stock Exchange, they dont screw up like the nasdaq. Do you think thats because of the presence of humans . I think that they have always competed well against nasdaq and one of the reasons may be because they are human beings involved and another is that duncan is a very strong ceo. I just feel like i ought to praise these guys. Their model is better. They work better. Whakt arca yesterday. Theyre the hostage to the nasdaq. Everyone is hostage to bob greifeld. Well be on the lookout for transfers. I think thats fair to say. Jim, no question. When we come back, Steve Ballmer announcing he is leaving microsoft. Retiring in the next 12 months. Rick would be rather be lucky than smart upgraded yesterday. Will give us his reaction after the break. Farmers presents fifteen seconds of smart. 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So i guess whats unclear right now does this validate that value active getting a board seat and theyre already having some effect for might suggest that value act had a harder time winning a board seat, that one of their key items to appeal to investors was was management succession is kind of off the table now. The other items, i think on value acts agenda is the significant repurchase and significant increase in dividend. I think all of that becomes more likely if you have new management in place. But i think right now the key question would be does this probability of getting a board seat or wrath whether they have to go through the proxy concept and whether thats effective. One of their main octobbjective management succession. Do you think that investors should chase the stock up here given the fact that what you just lined up is sounding like something not going to happen until next monday . I think that it validates that Shareholder Activism agenda is likely to be accomplished one way or the other. And so i think it suggests its not so much about fundamentals right now. Its about Corporate Governance and there are major changes. Its going to be good for the shareholders. Outside person coming in . Maybe bill gates coming in . Someone who might want to break up the Company Coming in . Gauge those and handicap me. So i think bill would like the successor to be someone that he knows and someone that he feels comfortable with. I dont think that person necessarily is an obvious person in the company. So the announcement that youre going to go to plan b which is struggle to start that search implies that, you know, theyre going to look far and wide and maybe its something that just has good general manager capabilities and not necessarily someone even from the Tech Industry and analog this might be lou who went to ibm, you you know, a decade or plus ago from nabisco who had no previous tech experience. Its definitely, rick, begun a fun parlor game that were going to play for months here. Ive already heard people suggesting scott forestall. Some people thinking about johnny ive if you want to make a dent in hardware. Are you ready to play this game . No, i think that it would be very well we dont know of today just like lou being brought in. Its a good general manager. I think the list will be much broader than we might think or speculate about at the moment. Well, rick, if this is the casend we dont know who is going to be in. Again, i come back to the idea, what is value act, are they saying, listen, they have all of this cash. They can reinvent the company . We spoke to meg whitman yesterday. Is this something where maybe if you acquisition a couple of spinoffs could fix . No, jim, i dont think that there is an easy fix or maybe even a fix at all in tablets and smartphones. You can certainly continue to try. But i think this is t not about fixing the company in that regard. Its about the pretty steady cash flow to significantly enhance shareholder value. Thats kind of step one. Step two is, what exactly new management accomplish other than perhaps addressing some of the shareholder immediater shus that have shareholder value creates. The harder issues will be working through the details about what do you do about search, tablets, and thats not exactly clear. Thats not easy to fix, obviously. Rick, real quick. Do you get the sense because its going to be a 12month move and instead of replacing him with a successor that there isnt a successor in waiting here . Correct. I do not believe there is a successor in waiting. Is that a management is that a fault of management, rick . Yeah, certainly is. You know, unfortunately at microsoft, there has been enormous turnover of senior people under ballmer. So were left with, you know, not obvious choices there. Okay. And Rick Sherlund again saying shares could move higher and today were seeing just that and, importantly, the retirement of Steve Ballmer. More coverage on this news throughout the show. Also still ahead, the cfo of pandora will join news a little bit with his first reaction to the companys Second Quarter. The shares are down. Squawk on the street will be right back. If youre serious about taking your trading to a higher level, tdd 18003452550 then schwab is the place to trade. Tdd 18003452550 call 18882849410 or visit schwab. 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Tdd 18003452550 and learn how you can earn up to 300 commissionfree tdd 18003452550 online trades for six months with qualifying net deposits. Tdd 18003452550 our trading specialists are waiting to help you get started. Tdd 18003452550 so call now. Tdd 18003452550 lets get six in 60 with jim. Staples had a rough day. Credit suisse, dont go there. I agree with credit suisse. Bear . Real Estate Investment a lot of people own. Be careful if rates continue to go higher youre going to have to sell it again. Solar. This is a company that has just been killed since they did the secondary. Probably right no take a look at it. Downgrade for guess. Apparel, anything apparel is a disaster in retail. Jp has retail on facebook. Theyre saying that things are tracking better so they got 338. July august looks good. New call. Jeffries . I point this up because hewlettpackard is getting killed. These guys, youre doing the killing very nice. Relook forward to seeing you tonight on mad. Again, New York Stock Exchange kind of fairing better than nasdaq. Absolutely. We do want to bring our viewers up to date. Shout out to one of our youngest viewers probably in the woorld. Everett campbell drake. Everetts dad scott tweeted yesterday, he said, hey, carl quintanil quintanilla, your voice was the first tv voice this guy heard in his life. We watch you with jaim cramer. I wrote back, dont worry, it gets better. Scott is a great guy. Works in i. T. Loves the nfl and breaking bad. Your kind of guy. Very nice. Jim, have a great weekend. Great show. When we come back, a lot more still to come. Breaking news on the Housing Markets and new home sales data hout in a few moments. In a few. Right now, 7 years of music is being streamed. A quarter million tweeters are tweeting. And 900 Million Dollars are changing hands online. Thats why hp built a new kind of server. One thats 80 smaller. Uses 89 less energy. And costs 77 less. Its called hp moonshot. 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We are live here at post nine at the nyse. The big news of the morning, of course, microsoft ceo Steve Ballmer will be retiring in the next 12 months. All eyes are on the nasdaq as we get a good open this morning on friday. Simon hobbs is live there. Some breaking news on housing. Jim with the cme. Hey, jim. If youre looking for to the around the tape fer vus no taper debate we just got an interesting clue in the Housing Market. Number came out 394 from an expected 487. Its an awful number. Month over month is down 13. 4, even the numbers from last time were revised from 497 down to 455. So this is an awful number. You know, the Mortgage Applications and existing home sales have been diverging. Mortgage applications doing poorly. Everybody has been looking for something to see what is going to give in the market. This could be the clue. Back to you, carl. Wow. Thank you for that. That is thats a big miss. That is a very big miss. Horrible. Think about the fact that, carl, just half a million a third of the pace were building homes during the peak. Half of the pace of whats normal. Below 400,000 in july . We fell by 13 . I mean, thats extraordinary. It does feed the overall thesis that institution alibiing, theyre not buying new homes. Great point. And explains sort of what you see with existing we got a few days ago. And the rerating in the buildings down 20 since their may peaks. Weve seen the heres whats interesting. Youve got confidence Homebuilder Confidence continues to rise. Eightmonth high even after some of this adjustment and rates happened. Toll coming out with commentary saying the market is still strong. They still like it. It would appear what theyre doing to shore up the business in the medium term at the same time means a hiccup or a pause in the rebound psyche that weve seen for new home sales in july. The biggest miss since may of 2010. Wow. We were looking for minus 2 . We got minus 13 on new home sales. We will be talking about that for the rest of morning, i guarantee you. Lets get to simon hobbs. Catch up on whats happening at the nasdaq. Good morning, carl. Weve opened successfully here at the nasdaq. 32 minutes into trade. Obviously the Investigation Continues into exactly what happened yesterday that all nasdaq stocks were knocked out for trading for 191 minutes. The interesting way is the way in which management here is pushing back very robustly, proud they say of how they handled the situation yesterday, bringing the market back slowly over a period of several hours so that youve got that final 35 minutes of trade. And therefore, price discovery and the etfs could settle and basically we could shut down for the night albeit with some people the day traders or the High Frequency traders had bigger problems during the coast of the day. Interest that robert greifeld, the ceo, is not talking Major Investments here to sort out the problem. Take a listen. Were deep my disappointed with what happened yesterday. We aspire for perfection. Right . We want to get to the 100 uptime. And we spend a lot of time, effort, and money to try to get there. We didnt get there yesterday. Obviously thats a problem. We need to continue on that quest. But its important to recognize that we have to have the ability to handle the situation properly when a problem arises. There are obviously others deeply disappointed if not angry with what happened yesterday. Really the story moves to the s e s. E. C. And the woman at the helm of that chair Mary Jo White and she said she will call in an emergency meetings of all the exchanges and Market Participants. There were plan on the table that stalled for a bit on ensuring better stability of those systems and those now coming very much to the floor. Whats interesting is that in andrews interview that we had earlier today, at one point he said that he would consider an extra consolidator. In other words, doubling up on the job that the nasdaq does here with that server that failed which is giving the entire market the bids and the offers and the best price information. So there would be two brains potentially if you see what i mean rather than one which, is as you know, guys, always better. Back to you. Thank you. For more on the nasdaq fallout and the breaking news that microsoft ceo Steve Ballmer will retire at the end of the year, jim stewart joins us now, columnist with the new york times. Won a Pulitzer Prize in the 1987 stock crash. Good morning. Good morning. Good to be with you. Thank you for joining us. Look, im curious first of all, the context you would give here around the nasdaq and this trading glitch. The longterm impact. What a major story. I think somebody has to m may Mary Jo White to say this is not acceptable, this is t not tolerable. The idea of reredundancy. I dont want to be a scare monger, im not a fishing writer either but i could write a thriller of who exploits a major vulnerability in the entire trading system. There ought to be a backup system when something happens that kicks in. But you know, youre taking the average investors liquidity away from them and one of the greatest advantages of stocks and etfs is the ability to buy and sell this when trading is going on. That was taken away yesterday. Jim, for those who think this is a nasdaq versus New York Stock Exchange kind of issue, just want to read a line saying the u. S. Equity market which was one the best model for Capital Raising and Capital Allocation has become the laughing stock of the world. Are they right . Its not just a nasdaq issue. I have to assume that any exchange in the u. S. Or elsewhere could be vulnerable to Something Like this. Im not a Software Engineer or expert on this. But Something Like this could shut down the whole thing. They dont seem to know why is scary. I assume that could happen anywhere. I dont think the u. S. Is a laughing stock. Its a global problem. We cant just sit back and point fingers. This is a serious issue. The regulators are right to treat it as an emergency, to get in there and come up with some solutions fast. Jim, why so many people saying, you know what, if youre a real investor this shouldnt matter. Exchanges shut down periodically over the years for various reasons. I mean, were in a technical optical age. This is going to happen. How can people just shake it off . I agree. I think this is really very serious. What if youre at a closing or youre about to you need this money at any particular moment. Suddenly you cant get it . You couldnt trade yesterday . Not only that. So it was several hours. They shut it down and said, we dont know when its going to reopen. Good for them, they did reopen in a few hours. During that period of time you didnt know when. Whether it was hours, days, or weeks. Tremendous level of uncertainty. If were vulnerable to this its going to suppress prices. They traded a liquidity premium. If you start taking liquidity away its going to show up and scare a lot of people out of the market. Its a terrible thing. Its got to be stopped. I have to assume given the technology cape it abilities of country, reredundancy has to be built. You can discuss big mac kro exchange related events and also stockspecific stories, whats your take on Steve Ballmer retiring . This is is fascinating. I have to hand it to him me did not have an amiable task stepping in after bill gates steering a behemoth like that during a period of incredible change. I think change is probably good now. Microsoft has really not vaulted past the pc era into this new age. They certainly have tried. Theyve done all kinds of things. But i really think the template here is going to be ibm which changed the business under lou from the hardware business, a legacy business, and decline and vaulted into a very Successful Transition into software. Very bold. Very difficult to pull off with a huge company like this. I think the challenges are going to be emmens but its probably going to take someone with a very fresh and innovative ideas about where technology is going. Does that it mean its funny you say that. Rick sherlund cited the gershwin model as well. Well, its definitely going to take somebody innovative which means maybe getting someone somewhat unconventional. Someone who has not been steeped in the microsoft way. Weve all worked at Big Companies at one time or another. Moving the aircraft carriers is incredibly difficult. And una at the top it really does take a change in agent with fresh ideas. I hope the board will think creatively and not worry about the safe choice. So i take it you dount want to see bill gates come back to the helm here . I dont think theres any i dont think bill gates would want to come back. Hes got a great legacy there. Why would he want to muddy with this now . Hes on to bigger and maybe, you know, doing all that stuff. Good for him. Hes made his name there. I dont think he needs to go back. Jim, its great to have you. Have a great weekend. Thanks again. Thanks. The nasdaq knowing it had some explaining to do, bob greifeld did that this morning on cnbc in the wake of that 3 1 2 trading halt. Mary thompson joins us to look at whether the day after explanations are too little too late. Hey, mary. Carl, the nasdaqs fiveyear radio silence during and after that trading halt raising questions about its ability to manage a crisis. Ceo bob greifelds response, the exchange was focused on fixing the problem, coordinating the reopen with other exchanges while keeping head traders an regulators informed. Not the press. We took the proper amount of time, right, to make sure that the testing was done, that the communication yesterday was so strong and we got that communication done and we came back and came back successfully. So its not our job, nor will it be, for us to go on the press, you know, to the press to public, while were focused on the issue. Still traders express frustration over a lack of detail about the problem source. Former s. E. C. Commissioner harvey pitt frustrated at management. This should not have happened. And the inability to tell people which securities would trade and which were opening ahead of others, thats pure chaos and its wholly unacceptable. Crisis Management Consultant eric backs the nasdaq decision to fix the problem before speaking to the press however it says it needs to repair the brand. The incident tells us the nasdaq may not know what its doing and it needs to show us how theyre fixing the problem or else its competitors will. For greifeld, of course, tuesdays trouble his second high profile problem. Bomping facebooks ipo last may resulting in a 10 million fine for the nasdaq. He did maintain the boards support after that debacle they assigned him to a new contract back in february of 2012 and gave him a raise. Whether or not he maintains that support, well have to see. He says he will be speaking to directors and cnbcs emails and calls to various directors to ask about this incident were not returned. Carl, back to you. All right. Mary thompson joining us from times square on that nasdaq story. Mary, thanks. When we come back, new home sales having their worst decline since may of 2010. Big miss today. What does that mean for the markets . Since Steve Ballmer became ceo of microsoft in 2000, the stock is, what, up or down . How much are we up now . Since he joined . Since he joined. Down 40 . What does ballmers retirement mean for the company . In todays markets, a lot can happen in a second. With fidelitys guaranteed onesecond trade execution, we route your order to up to 75 Market Centers to look for the best possible price maybe even better than you expected. Its all part of our goal to execute your trade in one second. Im derrick chan of fidelity investments. Our onesecond trade execution is one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Getting back to the markets today which are trading slightly lower. Premarket looked a little bit better than were getting here. Dow is awful 12. Nasdaq up ten. S p flat at 1557. John manly is the strategist with wells fargo funds management, joins us on a friday here at post nine. John, its great to have you. Great to be here. What a collision of topics that investors now have to deal with, right . If its not jackson hole youve got Exchange Mechanics to worry about. Is this going to be something we live with for a while, this discussion, or not . I think mechanics i think go away. These things come and go. Its like my iphone going off, i get so mad only because it works most of time. Weve got to get through the issues. At some point in time theyre going to have to taper. I think we get through it again. Really . Yeah. The rest of the year you see us chugging along here or do you see a big directional move either way . I dont have a great feel. I think its flat up. I dont see a lot of risk despite the fact that its dell one the first half of the year. The fed is not going to tighten. Does anyone really think ben bernanke will undo everything he broke every rule in the book to do . I think hes going to be cautious. What about the home sales report this morning . People anticipate rates going up. So i think you might have front ended so stuff. We sold a house ourselves. People wanted to close very quickly. So, you know, these things are volatile numbers. Theyre subject to revisions. I still think Housing Market is getting a little bit better. I think youve got five years of pentup demand. And basically fit doesnt do better, the fed is not going to leave. Theyre here to get results. Theyre not going to taper. Well, but heres the interesting point. Were hearing the fed continue to outline some concerns about whether qe is helping more than its hurting or just about the efficacy of the program, the way in which it can affect structural change on the economy. Some of the market may be looking frothy. Is that why people dont necessarily think a weak report like this is going to make them more think to themselves, better safe than sorry that, in fact, they might still want to press on with the taper . I dont think ben bernanke has ever had a unnuanced thought in his life. If you want to put it all to the and when he starts to move hes going to move slowly. Its not only when but how. Basically the way i look at it is the full faith and credit of the service behoond the economy and align with the market, does it go up for the next three months . I cant tell you that. Does it go up in the next 15 months . Im pretty confident it will. Are you hearing from clintsz whether retail or institutional that they want in . There was that sense earlier in the t year when it was a straight shot, right, working our way up 10, 15 , im not hearing Portfolio Managers cry out the way they were in the first half. No, you know, i think, you know, its not so much they want in is they dont want to be out anymore. Part is just being on the outside looking in. I think the First Six Months of the year, first seven months, tremendous amount of money pushing in. I think theres still that money on the outside. Thats why i dont know about the next three or four months. That much to empower us to the end of the year, maybe, maybe t not. Just curious. If regulators call you and say, john, is Market Structure today better or worse than a deck aid decade ago, whats your answer . Let me talk to my lawyer and get back with you. I think things get better. You want markets to be faster . I want them to have the capability to be as smooth, liquid and clear as possible. I think that, you know, clarity is extremely important. Knowing the trade is done is important. The more we do that ultimately we live within the states of complicated societies. John, its good to have you. Thanks for coming by. Thank you. Shares of pandora are losing more than 12 today following the companys quarterly results. And pandoras cfo will join us live after the break with his take on things. Squawk on the street will be right back. I hav e low testosterone. There, i said it. See, i knew testosterone could affect sex drive, but not energy or even my mood. Thats when i talked with my doctor. He gave me some blood tests. Showed it was low t. Thats it. 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Tell your doctor about your medical conditions and medications, especially insulin, corticosteroids, or medicines to decrease blood clotting. In a clinical study, over 80 of treated men had their t levels restored to normal. Talk to your doctor about all your symptoms. Get the blood tests. Change your number. Turn it up. Androgel 1. 62 . Dow continues to mildly struggle here, down some 15 points. Number of stories were working on. Obviously we wanted to see how the nasdaq would open. Things appear to be orderly at the top of the session after a very difficult day for the engine change yesterday. Steve ballmer leaving microsoft. Huge gains in market cap in the premarket. Thats held on there. A gain of almost 9 . Steve ballmer hits, kell, who owns 300 million shares, just enriched his pockets 840 million by announcing his own retirement. I was going to say who needs a golden parachute when all you need to do is retire. At any rate, then theres pandora, Second Quarter revenue jumping 60 thanks to mobile unit. The stock is down thanks to Third Quarter earnings. Outlook below estimates. Jul Julia Boorstin has the cfo of pandora. Good morning, carl. Good morning to mike herring, cfo of pandora. Before we get into earnings. Weve got to ask you about the big nasdaq flash freeze. I know that pandora is trading on the New York Stock Exchange. If you were the cfo of a company about to go public, how ouwould that impact you . Were on the New York Stock Exchange so it didnt affect pandora. Volatility and stability are important for a stock but i dont have a lot of comment directly on the nasdaq. And now do you have any sense of the need for more Regulatory Oversight or any changes . Im sure that the nasdaq and the regulators will figure out a way to prevent this from happening again. Moving forward, looking at your earnings, now, your stocks now at 12 today. Why did youre out look fall so far short of estimates . Pandora is a business thats firing on all cylinders. And we actually raised revenue guidance for the year and affi m affirmaffir affirmed profitability for the year. Were investing for our opportunity. Were third in mobile advertising revenue. We are the undisputed leader in Internet Radio and we think that that opportunity is just going to be bigger over time and who the right thing to do strategically is for us to to invest in that opportunity. Now, one big announcement we made yesterday is the fact that were eliminate that 40hour mobile listening limit. Why are you doing this and how is that going to impact your results . We implemented the 40hour listening limit six months ago in order to manage costs and control growth. In the last six months weve implemented other levers in order to control cost and improve listening experience. And the blank at 40hour limit is no longer necessary. Mr. Herring, hi. This is simon hobbs at the nasdaq Stock Exchange. I know a lawyer who negotiates the rights within your industry and he tells me that one of the great unknown or underreported scandals is that artists are going to get very little revenue from your industry because the up fronts that the Record Companies are charging is so massive that they will never actually be made up and actually trickle back to the artist. Is that the case . Pandora was founded by artists for artists. Were committed to provide Strong Revenue streams back to the artists. Its one of the reasons why we enjoy this statutory rates. Its guaranteed 45 of our ro l royalties that we pay will go directly to performing artists. Thats one way we can guarantee that will happen. How the upfronts impact our competitors, payments, is subject to their own contracts. Speaking of competitors, you have apples big iradio launching in the fall. Is this dropping of the 40hour listening limit just a move to get ahead of that and what kind of threat does that pose . We are the undisputed leader in the Internet Radio. Weve had competitors large and small over the nine years weve been establishing this category and we believe we will be able to maintain market leadership for some time. Apples entrance is the most recent competitor out there. I think we are more likely to see their emphasis on advertising draw attention to the potential of connected radio advertising and grow the market generally. And we believe that we have a strong Competitive Position in that market Going Forward. But per simons question, apple will have lower costs than pandora will. What about that . We are happy with the cost structure that we have under the statutory rates and preparing for the next rate of rates Court Proceedings that begin in 2014. The apple rates will be one piece of evidence as part of those proceedings. So were confident that the right outcome will be achieved. Quick final question about mobile. You are making more money from your mobile users but it lags desktop dramatically. How can you catch up . Weve seen dramatic growth in our mobile advertising. Up 92 year over year to 116 million in the last quarter. In our monetization level is up significantly. It does lag our desktop monetization. That shows the potential of the mobile monetization. Its early days in the mobile Advertising Industry where the desktop Advertising Industry has now been around for over a decade. We think that mobile Advertising Industry will gain strength a lot faster than the desktop Advertising Industry did. And as that happens, pandora will be there to capitalize on those trends. That story is one to watch for pandora and your competitors. Mike herring, cfo of pandora, thank you for joining us. Well see if it can help shares find some bottom after being down double digits today. Microsoft getting a pump on news that Steve Ballmer is retiring in the next 12 months. The question is what should you do with the stock from here. Ive been doing a few things for a while that i really love tdd 18003452550 playing this and trading. Tdd 18003452550 and the better i am at them, the more i enjoy them. Tdd 18003452550 so im always looking to take them up a notch or two. Tdd 18003452550 and schwab really helps me step up my trading. Tdd 18003452550 theyve now put their most powerful platform, tdd 18003452550 streetsmart edge, in the cloud. Tdd 18003452550 so i can use it on the web, where i trade from tdd 18003452550 most of the time. Tdd 18003452550 which means i get schwabs most advanced tools tdd 18003452550 on whatever computer im on. Tdd 18003452550 its really taken my trading to the next level. Tdd 18003452550 ive also got a dedicated team of schwab trading specialists. 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Interest in the papers have been heavily scrutinized by people concerned that koch owned papers would push conservative causes. A new dark knight rises, warner bros. Announcing ben affleck will play batman bringing batman and superman together on the silver screen. Affleck will replace christian bail who has played batman since 2005. What a debate on the internet that is, kell. I am not supportive of this. Speaking of bulls and bears, microsoft on the news the company ceo Steve Ballmer is to retire in 12 months. Colin is director of research and Senior Technology analyst. Colin, welcome. Youve got a hold rating on microsoft. Raise it to a buy here . No. In fact, if youre buying this, you have to be very concerned that you have a difficult 12 months in pront of you because if you think about any type of ceo transition, is this happening because the Business Trends are likely Getting Better or likely getting worse . June was the fiscal year end for microsoft. It makes sense. Hey, where are we . If you look at whats happening in the state of the pc market. Two quarters of double digit delines. Leno lenovo, sells more smartphones now than pcs. Do you worry this is a distraction and one in which the company will double down on a strategy that isnt working . Well have to find out who the new ceo is. Steve ballmer is embarking on a major reorganization of this company. And thats going to be his final act. And then whoever is the new ceo coming in will inherit this along with any that comes from a reorg. If you are an investor in microsoft, you might be looking out. What ballmer will do in the next year, make the units fight for survival, right . Something they naefr r never really did. They fed all the kids no matter what they were doing. Everyone wants to knock steve. He did take the company from 25 billion in revenues to north of 77 billion. He did a lot of good things. But unfortunately like we said, the bread and butter core of business is showing a lot of cracks, particularly if you go back and look at pc sales. They peaked at 96 Million Units in the September Quarter of 2011. Wow. This decline has been going on for quite some time. Just really focused in on it because its double digit. Is it right for them to follow ballmers idea, should the company be split up, need another strategy entirely . Great question. The thing is whoever comes in next is going to have a very difficult time to split this company up post this transition. Right now everyone who is part of, you know, windows raise your hand, right . Everyone who is part of office, raise your hand. Part of bing, raise your hand. Afterwards, its much harder. If youre expecting a breakup after this reorg its going to be much more difficult to accomplish. What about all of those wait for Balance Sheet whmaneuvers, dividen dividends, buybacks, are those now back burner issues . You know, theyre among one of the Better Companies in the space of returning cash to shareholders. They have a decent dividend. They continue to increase it every year. They do excess cash to repurchase shares. You know, they faced a problem that most Large Tech Companies do. They have a large offshore cash position so they dont have a ton of onshore cash. Majority is offshore. Issued debt at excellent Interest Rates. Theyve done a good job from the Balance Sheet perspective. Some are saying keep it coming. Sure. Keep it coming. Like any time youre dealing with dividends, you want to hike at a nice steady pace inline. I think theyve done a great job in that regard. The argument for the shares is not just the management reorg here potentially the Company Reorg but it is the financial engineering. Do you not acknowledge that theres upside here if they go forward with this plan . It depends, right, because, you know, the new ceo made decide, hey, i want to be more inquestions ti inquisiti inquisitive. Theres 100 different instead of borrowing to do the buybacks. Correct. There are multiple ways to take this company. Stay the course, try to split it up, chase after acquisitions and push harder into devices and things along those lines. Try to mimic the apple model. The problem with mimicking a business mod der thats been successful is youre typically too late to the party. I guess better late than never. Well, were going to find that out. Yes, we will. All right, colin, sticking with the hold, colin gillis this morning. Thank you. Sense of normality is returning to the nasdaq here today, now clearly over an hour into trade. Normal trade after yesterday the market was paralyzed, of course, for over three hours. Not just here but all nasdaq trades across the country. This is how the ceo of nasdaq is now explaining what happened. We have a data feed which consolidates trade for 13 exchanges. We do that for the industry. That had a problem. As soon as we saw that had a problem we had a fundamental concern. We knew professional traders had access to individual data feeds but the traditional long investor, Retail Investor now didnt have the same information. Because of that we halted the market. Joining us now is david sieberg, head of sales and training at cowan. What was your experience with yesterday . How are you, simon. Thank you. My experience from yesterday is it was a relatively quiet day. We had lack of news flow, lack of volume. We were lucky about that. Im going to tell you the Biggest Issue and when i listen to the commentary the ceo made this morning on your network, the Biggest Issue is communication. You know, he made a comment saying that essentially theyre not responsible to communicate with the press, theyre not responsible to make people aware of that issue as it was incurring. I could not disagree more. I think its absolutely irresponsible for them not to make the Middle American investor aware of what was happening, the professionals were aware. They were getting feeds. We were getting news feeds coming in. They were making sure we were aware from the standpoint of how stocks may or may open. But if youre sitting in Middle America, you had no idea. It angers me because theres a responsibility there to the people investing in these companies, listed on that exchange, and, you know, to make sure theyre aware of exactly what was going on. And they were left out. I think in fairness to greifeld it would be a question of priorities in his view. Probably you have a relatively small team, the job has got to be to ensure that financially nobody gets hurt rather than appearing on Cable Television i think is the point hes trying to make. No question. I absolutely agree with that. Im not saying that. Im saying if youre sitting in the middle of the country you have no idea whats locked up and why. The press is the only conduit of information to you. I would say that we had an issue with facebook. We had an issue with the flash crash. We had an issue yesterday with what occurred on the nasdaq, technological issue. What i have an issue with is how its communiqued to the public and how mom and pop in Middle America are actually going to get informed on that and they should be informed because theyre the ones investing their hardearned money in the process. David, i want to ask you specifically and everybody now has an idea of what they say went wrong with the communication problem with the nyse and the main server here. What fascinating me is the statement theyre making, pr statement and we just played a clip of it. Professional traders had access to individual data feeds but the traditional longterm investor, Retail Investor, didnt have the same information. Is that true . And if it is true, isnt it the nasdaqs fault in the first place . You know, i cant answer to the fact whether or not its true or not true. What i will tell you, what really adds to the confusion if you really want to put it in perspective and frame it out, theres 52 place wheres stocks can trade. Theres multiple regulators for each exchange. Theres no real central decision maker. If you equate it back to when we had hurricane glory of 25 years ago. 25 years ago the New York Stock Exchange decided they were going to shut down and everything shut down. Hurricane sandy comes through and theres multiple meetings, multiple condition fusion about what should or shouldnt happen. It takes the s. E. C. To step in and actually make a decision to shut down the universal market. I just think in general, there needs to be more central more centralized process about Decision Making to make sure everybody is kept in the loop at one time and it just doesnt occur. What about a more fundamental overhaul of the Market Structure. You hear that coming from senator schumer from new york. You hear harvey pitt talking about the need for zero tolerance and very heavy fines. Right. I mean, i think that needs to be looked at aggressively as well. But i think just the backup a little bit and realize we are going to have more technological issues. Theres no doubt were in a technological environment now and thats going to be the market. As nasdaq says, for the next 100 years, if its going to be the nasdaq for the next o100 years, there needs to be a level of responsibility when it comes to communicating and a priority to make sure that people are aware of whats going on. And that, frankly, just did not occur. David, its good to see you, sir. Have a great weekend. Thank you very much. Guys, back to you at the nyse. Simon, thanks. Top minds in the economy ga gathering at jackson hole. 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[ male announcer ] come to the golden opportunity sales event and experience the connectivity of the available lexus enform, including the es and rx. This is the pursuit of perfection. The future of the economy and the Federal Reserve moves up to discussion now. The annual jackson hole symposium is on the way. Our own Steve Liesman is out there and spoke to president in part one of twopart interview and promised, heres the second half of their discussion. John, lets talk about the guidance the fed has provided. The markets the fed had been trying to tell markets that reducing quantitative easing is separate from raising rates. Right. The market doesnt seem to act that way. Well, im not so sure about that. You know, we do try to read Market Expectations of future fed policy. And its not obvious to me that Market Expectations today of future fed policy are that out of alignment from what i think is a reasonable view based on our own projections that come out in our fmoc projections. Im not certain that today the markets are that confused about that but it is a very important point that to the extent that we adjust our purchases that in no way is handing a removal of monetary accommodation or a raising rates. Im hoping our Forward Guidance is helpful in that regard in separating these two. When would you estimate would be the first rise in Interest Rates . Again, it would depend on the data. Thats my mantra. Looking at my forecast, im expecting i think employment to fall below 6 1 2 in first half of 2015. I would expect that we wouldnt start raising rates given the expectation of the inflation would still be below our goal until later in 2015. Raising the fed funds rate. After the unemployment rates come down below 6 1 2 . And what about your growth forecast. You have to bring it down from where you were for the second half of this year . Sure. Its obviously driven by the data. Sure. And once the data come in your forecast has to be thrown out. You have to rethink that. Clearly growth in, i would say, currently is running around 2 . Real gdp growth. I still expect there to be a significant step up later in the year and in 2014, especially as the fiscal restraint on growth steps back. How much of a concern is low inflation right now. I think it was a real concern earlier in the year. We saw readings on our preferred inflation measure get down to 1 which was quite low. At the same time, our analysis suggested there was temporary factors. What weve seen in the last few months supports that view. Were seeing inflation moving back up, not high but moving back towards our 2 goal. So i would say its a concern but as long as inflation continues to progress as we see, i feel good about that. One thing thats not been discussed a lot is this notion of if the fed does not taper, it will especially in the mortgagebacked Security Market take a larger and larger chunk of the issuance. Ive even heard estimates say you may be taking more than whats issued in the mortgagebacked trading market. How much does that play into the idea that the fed does need to step back. One of the factors in thinking about the right quantity of purchases has always been thinking about both the effects of the macro economy, promoting growth and job creation and keeping inflation around 2 but also concerns about we dont want to be causing disruptions or dysfunction in markets. So as we if we got to too high a level of purchases relative to the market i think those concerns would be greater. Right now i think our level of purchases that were doing doesnt create the dysfunction or problems. In terms of the stem laws you provide. If youre taking more of the percentage of duration off the markets thats a reason to step down, isnt it . Its hard to judge exactly the effects there but i would think that the more the higher percentage of purchasing of the market is probably bigger effect we would have on that market. I would agree with your point. John, thanks for joining us. Sure. We will see you at the conference. Great, thanks. Back to you guys. Thank you, steve. And more from jackson throughout the day here on cnbc. Meantime, here at the nasdaq, a very strong message from ceo bob greifeld speaking out this morning. Trying to reensure investors its still safe to put your money in the 3,200 nasdaq stocks. What do investors think about what greifeld did yesterday and what hes saying today. Make it happen with the allnew fidelity active trader pro. Its one more innovative reason serious investors are choosing fidelity. Get 200 free trades when you start using active trader pro today. A quarter million tweeters is beare tweeting. And 900 Million Dollars are changing hands online. Thats why hp built a new kind of server. One thats 80 smaller. Uses 89 less energy. And costs 77 less. Its called hp moonshot. And its giving the internet the room it needs to grow. This is gonna be big. Hp moonshot. Its time to build a better enterprise. Together. For more on the ripple effects that nasdaq has sent through the rest of the market system this morning, were here with kenny, a trader at oneil securities. You walked us through the thick of it yesterday having. Having a day or night to sleep on it, do you feel any different . What i feel about is not so much that the economy is broken because nasdaq doesnt necessarily talk to the health of the companies that parade there, what it really talks about is the condition of Market Structure in this country which i think is clearly broken at the moment, as do a lot of people. There are way too many venues, way to many points of connectivity. Theres no reason to have 90plus venues to trade ge telephone, microsoft, apple. It just causes chaos. For some participants in the industry, chaos is great. For the longterm investors, chaos is not what you want at all. You want transparent, reliable, robust, and vibrant markets. Isnt it the Stock Exchanges own fault for going public . Listen, and thats part of the conversation. I absolutely agree because then you become now you have a whole new set of masters to have to answer to when you go public, whether its any of the exchanges that have gone public. What if in washington they said, you know what . We dont like this Market Structure, were not convinced about. What were going to do is make the nyse a public utility and all u. S. Listed stocks will trade through here. Essentially thats what it was. It was a public utility prior to the structure we have today. It was a humanbased public utility so we know where that went. What were talking about is the way the u. S. Market is structured today. Kenny so i agree. The other thing i think is that marketplaces should not be dark pools should not be owned by banks because theres an inherent conflict of interest. Simon . Kenny, you are head of floor trading on the nyse. Of course, youre going to be opposed to what is happening here in electronic trade in the nasdaq. Electronic trade has given most people huge advantages they never had before. Just ordinary people whoa wait, wait, wait. Let me speak. This is a free Market Solution that you see before you. The question is, is there the outrage across the country to generate change from the s. E. C. , from the regulators, and to have more Government Intervention to put things a different way, and i dont see, i dont hear the outrage this morning. It looks to me like greifeld has again got away with a massive failure in terms of public perception. Well, i think youre right, but i do think that there is movement now inside the industry that realizes that weve allowed technology to now take control of us versus us using the technology to control the situation, and thats where youve really gone off the rails, right . Is when technology now is the one who is taking charge and leading. And thats the problem. The pendulum has swung way too far to the left and a lot of people in washington and a lot of people in the industry now realize thats the case and it needs to come back some place in the middle. No one is saying go back to New York Stock Exchange, human brokers, pen and paper, buys and sells. Get off that argument, im not there at all. I use technology all day long to do what i do. I connect to my customers, i access the marketplace. Why do we need 90 venues to trade this stuff . I have a better idea, and it came from myron shoals, who is one of the fathers of options trading. Apparently, i had not heard of him but he was in the Financial Times today. He made the point, and this is a free Market Solution, simply say you cannot cancel trades. Goldmans or the nyse, if you make a mistake, you will have to pay the price for that. I think youd probably find you suddenly had much more robust systems in there. In fact, that might be very true because i do agree at some point youve got if you never end up paying the price, then you never end up fixing the problem. So if you keep canceling those trades, it lets you off the hook. That might be one part of the solution. Although the other part of the solution i think is to go back and look at the current Market Structure we have today because i think, and a lot of people will agree, current Market Structure leaves a lot to be desired. You know, a lot of people said the biggest lesson of yesterday was that the small number of people who actually care, and what that says about Capital Markets in this country. Thats a sad statement because Capital Markets in this country were really designed for listed companies to come, bring their stocks to go public, have the average person and people in this country be able to invest and generate and create wealth for a lifetime. When you have you know, the markets are very institutional. You have the retail guy who buys 50 shares of coke. Its not going to affect him. I get that. Were talking about institutions, major Asset Managers in this country and around the world that come to places like the New York Stock Exchange or nasdaq or the u. S. Capital markets to invest their money and what they want a s a robust and vibrant marketplace. Thats one of the better selling points we have. Well, it absolutely is the selling point that we have. Kenny, have a good weekend. Thank you. Now, when the ceo of a Major Company steps down, the stock markets reaction is usually a pretty good indication of what wall street thinks about him. Today probably no exception. Take a look at shares of microsoft. Theyre up pretty sharply after ceo Steve Ballmer says he will be stepping down a year from now. Well take a closer look at whats next for the company in just a few minutes. Stay with us. 2550 then schwab is the place to trade. Tdd 18003452550 call 18882849410 or visit schwab. Com trading to tdd 18003452550 learn how you can earn up to 300 commissionfree online trades tdd 18003452550 for six months with qualifying net deposits. Tdd 18003452550 see how easy and intuitive it is to use tdd 18003452550 our most powerful platform, streetsmart edge. Tdd 18003452550 we put it in the cloud so you can use it on the web. Tdd 18003452550 and trade with our most advanced tools tdd 18003452550 on whatever computer youre on. Tdd 18003452550 also, get a dedicated team of schwab trading specialists tdd 18003452550 who will help you customize your platform tdd 18003452550 even from the comfort of your home. 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Welcome back to squawk on the street. Im Jackie Deangelis taking a look at shares of facebook here. They broke above 40. That is a new 52week high for the company. The stock now up roughly a little bit more than 50 since reporting earnings on july 24th, and, you know, its interesting to see this move because those earnings, carl and kelly, that we saw from facebook in the Second Quarter really a gamechanger for this stock, but we are watching it. Its trading above its 38 ipo price. Right now 40 even. Back over to you. Thats a big move. I mean, getting across 38 was an important psychological milestone, but getting to 40 and holding the gains is key for that company after that stellar quarter. In fact, since they reported, kelly, its up 51 . Wow. Again, on a day when weve talked about nasdaq and the way it handled that initial ipo and the fact its crossed over 40, just an interesting one. Poetic. With the dow up 26, if youre just joining us, here is what you missed earlier on. Welcome to squawk on the street. Here is whats happened so far. I can never commit to anybody that there will never be a problem. We have to commit to were going to work as hard as we can to get to 100 and to the extent we cant, we cant achieve perfection, that we have the proper procedures in place to respond to it. Theres a lot of things that are really hard to get at to try to link the Financial Markets effects to the real economy effec effects, but absolutely classic Monetary Policy easing. You know, its going to be business as usual. I dont think anyone is going to get hurt by this. Its just not even bob greifeld. I think hell be fine. He said he was fine, so, therefore, hes fine. Im getting word in my ear that Steve Ballmer of microsoft is to retire. I know theres a lot of pressure on ball mmer to delive. I would like to think he left because hes done but this obviously is a shock. Its a shock. Shares up 6 on the news. Im going to stick with with wha chairm what chairman bernanke said, it will depend on the data. The number came out 394 from an expected 487. Its an awful number. Well, i do agree its not just a nasdaq issue. I have to assume that any exchange in the u. S. Or elsewhere could be vulnerable to Something Like this. Good friday morning live here at post 9 at the New York Stock Exchange. What a morning we have on tap. Watching whats happening over at the nasdaq today. New home sales were a big miss. Dow, the s p, the nasdaq all trying to get past all that though. Were looking at modest gains as were coming off of a relatively losing streak over the past few days. Microsoft one of the big stories of the morning. The stock rallying after Steve Ballmer says he will step down in 12 months. Microsoft is forming a Search Committee, including founder bill gates. Shares of expedia rallying as well. The Online Travel agency says it entered into a longterm agreement with travelocity. Under the agreement expedia will run most of travelocitys u. S. And Canada Operations while travelocity will focus on attracting customers. An hour and a half since trading opened and things going as planned for the nasdaq so far. This coming just a day after trading was frozen for more than three hours. Well tell what you you need to know the morning after. And major news, microsoft ceo Steve Ballmer announcing this morning he will step down in 12 months. Well tell you everything you need to know about the future of this company and the move. And the annual jackson hole symposium kicking off. Well take you live to hear of the top minds at the Federal Reserve. Plus the game ser back. Game stop reporting a strong Second Quarter earnings. The latest editions of the xbox and playstation. Well talk to paul raines a little later. First up, microsoft. Our next guest predicted shares would jump if ballmer did announce his retirement, and, indeed, that is the case. It was up almost 9 this morning. Settling back just a touch. Dan niles is a cio at alpha partners. Good to have you. Good morning. Thanks, carl. Nice to be on. The big question is do you chase it here . You say its a bit tricky, this call. I mean, im actually buying some shares, and this is the reason. What people forget about stock prices is there are two things that drive it. Earnings and the multiple people will pay for those earnings. I think earnings are still too high. I think they still have to come down. But when you look at the stock right now, there are a couple of events that i think are coming up that will probably make it go higher in the short term. August 30th obviously proxy contest. The deadline for that. The ceo is going to be gone. I think this was sort of a precursor to that and then september 19th you have the financial analysts day, and i think you will get a Dividend Increase and probably a big buyback increase. I think in the near term the stock probably heads higher, but lets not forget, this business has got a lot of issues, and, you know, theres a lot of precedent for replacing the ceo and still having the stock go a lot lower. Dan, this is a shortterm play for you then . Its definitely a shortterm play. You can bring me back on after they report earnings, but i will bet you theyre going to miss the earnings. I dont think theyre going to be able to make it and ill bet you that the estimates will have to go down after that. So the short term its more about multiple expansion because people will look at this and say this is great, ballmer is gone, bring in a new ceo, things will get fixed. Look at what happened with jcpenney, look at what happened with hp. Nothing has changed fundamentally. Microsoft missed the transition to tablet, missed the transition to smartphones. Those problems are all still there. So the new ceo better be amazingly good because hes going to have his work cut out for him. Dan, a lot of the skeptics out there this morning are saying all of you who are trading the stock higher, remember the committee to search for the successor has bill gates on it, ballmer himself is on it. Do you expect true out of the box thinking, dan . Only way Steve Ballmer is gone is bill gates wants him gone, in my opinion. Theres no other way this happens. And so i think that they have sort of struggled along this path for a long period of time. I hope they do some out of the box thinking and it gets somebody from outside the company. They bring somebody from inside the company, i think thats going to be a very bad decision because, you know, the path that theyve been currently on just hasnt worked. So the question you ask i think is the critical one and i think they really do need somebody from the outside to bring a fresh perspective. Are you saying bill gates is still calling the shots for microsoft . Lets face it, when you think microsoft, what do you think . Its bill gates. Hes the largest shareholder at the company, and i think theres no way that Steve Ballmer could be gone if bill gates didnt want that to happen. Thats my opinion, i dont know that for a fact, but, you know, hes the person thats the most important figure, in my opinion, at microsoft. And finally, dan, just to knock down some game theories out there, percentage lyle ikeid gates himself comes back to run it. I dont think thats going to happen. I think from my perspective hes doing what he wants to do. He obviously is one of the greatest ceos weve ever seen in our lifetime, and, you know, but hes moved on to other things that i think are equally important in terms of doing things to change the world, and i think there are good ceos out there. I personally i would love if they brought a guy like Michael Capel la to run the company. He did one of the greatest turnarounds in history with mci. Knows the computer business and the Software Business. Theres a name we have not heard in a while. I know, but think about it. What company was more screwed up than worldcom, right . And he managed to clean it up. But i think they need to think about things like that. They need to look, you know, outside the box and think about things that, you know, you havent thought about maybe that come top to mind. Well have to see how this plays out, but dont get me wrong, for me this is very short term because, as i said, i think the estimates are coming lower but i think in the near term the multiple is probably going higher. Dan, thanks so much. Dan niles joining us from alphaone. We want to bring in john frt with mo jon fortt with more details on the timing. It comes amid a key reorganization. Yeah, kelly. I have been talking to some people today, and its interesting. What im hear something that ballmer had been telling people internally that he planned to retire sometime around the time his youngest son was done with high school, which i understand is around the 2016 time frame. That might explain the line in the press release where he said originally he had seen himself being in place about halfway through this transition that theyre going through right now. So a lot of questions around that, and, you know, i have talked to a couple of people internally who seemed flustered by the timing here, trying to get their heads wrapped around it. It seems like this wasnt that well telegraphed internally. Part of the reason for that reorg was because there are fiefdoms inside microsoft. Ballmer laid that out. The idea is everybody put your knifes away, were going to start working together and to kind of borrow from history, it reminds me of the sort of idea, okay, the king is on his deathbed, what happens in the royal family . All the knives come back out as people try to figure out who is going to jockey for position. That could potentially happen here given the fact that so many people even high up in the organization were surprised by this timing. Its not what ballmer himself had telegraphed up to this point, guys. Thats really good color, john, and something were going to use as we play this parlor game over the next few weeks and months. Thanks so much, our jon fortt on microsoft today. Things are back up and running at the nasdaq today just one day after it was frozen for three hours aft hours. After a major freeze, you can probably expect some new rules. Some were pushing for new rules long before yesterdays debacle. Scott cohn has more. This is what were talking about, 377 pages of regulations proposed by the s. E. C. In march to replace voluntary standards, some of which date back to the 87 stock market crash. Together theyre called regulation sci for systems compliance and integrity, and s. E. C. Chairman Mary Jo White talked about it at a Senate Hearing just last month. Regulation sci requires exchanges and clearing agencies to maintain policies and procedures reasonably designed to meet certain technology standards, and it would require appropriate corrective action if problems occur. But that very day, july 30th, the nasdaq and 16 other exchanges along with their selfregulator wrote the s. E. C. To complain that the rules are vague and overbroad, not to mention expensive. The cost burden analysis is significantly underestimated, they said. This morning nasdaq ceo bob greifeld seemed to back you a of that just a bit. When you look at the details of the rules, theres always ways to quibble, but the pure spirit of the rules are there, and we think, in fact, we want to go further on this concept of defensive driving. In her Statement Last night, Mary Jo White said she would renew her push to get the regulations passed. The s. E. C. Staff is reviewing hundreds of pages of comments. Some saying the regulations overreach, others saying they dont go far enough. They are looking at potential new measures involving High Frequency trading. So this is something they will be talking about for a while. Carl, back to you. Thank you so much for that. Another day, another brutal day for teen retail. Shares of abercrombie down another well, down 1 , as you know. A rough day yesterday, and, of course, aeropostale having a rough morning as well. Well tell you if theres any safe place in retail to put your money when we come back. Clients are always learning more to make their money do more. ann to help me plan my next move, i take scottrades free, inbranch seminars. Plus, their live webinars. I use daily market commentary to improve my strategy. And my local scottrade Office Guides my learning every step of the way. Because they know i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Ranked highest in Customer Loyalty for brokerage and investment companies. Aeropostale joins abercrombie in teen retailers reporting disappointing earnings. Where are teens shopping. Jamie, do you have a good answer to that question . Well, our main concern is that teens are finding sort of other outlets to shop. With Companies Like h m launching online capabilities, you know, theres the ability to find sort of fast fashion at low prices, and there could be sort of a market share shift going on. Interesting. Richard, how long is it going to take to sort of clean out the inventory thats not moving and do you see any kind of acceleration in the period between back to school and holiday . Not for the retailers you mentioned. I think abercrombie and aeropostale are uniquely positioned, poorly positioned to serve the teens. Fashion has shifted. These two retailers have not kept pace with the changes. Its interesting, richard, because yesterday we had people arguing that if they get the fashion right, that he is nothing that fundamentally wrong here that the teen retailers have been closing stores, et cetera. Do you share that view . Yeah, its all about product. Okay. So if its all about product, that would suggest that the industry itself isnt plagued by overcapacity, that the issue isnt that teens are under financial pressure or theyre buying ipads instead . Absolutely. There are no naked teenagers. Okay. Not sure where youre hanging out but you may be right. Jamie, what explains the success of an urban then. If you had to explain to your grandmother what theyre doing that aeropostale, and a f and american segaein eagle are not, the difference . They dont cater to the same Consumer Base. Their Consumer Base is a little more high end with anthropologie and free people and the products span a range. The product that the teen retailers are offering are really quite commoditized. That allows teens to go wherever the best price is. I know this is the real trick here and theres not an obvious answer, jamie, but what is the fashion that you think teens want these days . You know, i think it changes very rapidly. And i think there are Companies Like h m that are able to get things in the store in a much shorter time frame. Whatever the current trend is, you cant really batch order for the season. You have to fill as needed. As these Companies Tell Us theres more left open to order, i dont think its moving fast enough and its kind of leaving them in the dust a little bit. Richard, with all of the action that the stocks have made over the past couple weeks, are you comfortable with the contrarian short urban, go long a f trade or does that still not make sense . It does not make sense to me. I think abercrombie has a fundamental challenge to reposition itself from the uniform that kids no longer want to the diverse, broad offerings that urban has and that teens have demonstrated they prefer. Its tough to keep up with those fickle tastes, ill tell you that, especially when you have inventory and orders to do. Thank you for your insight. Talk to you soon. Its a big day for the nasdaq. Things are back up and running after completely locking up yesterday afternoon. Well go live to the exchange to tell you what happens next in just a few minutes. Stay with us. We provide the exact individualization that your body needs. This labor day, dont invest in a mattress until you visit a sleep number store. Once you experience it, theres no going back. Oh, yeah at our biggest sale of the year, every bed is on sale. Queen mattresses now start at just 599. And save an incredible 40 on our limited edition memory Foam Mattress sets. Only at a sleep number store. Sleep number. Comfort individualized. [ kitt ] you know whats impressive . A talking car. But ill tell you what impresses me. A talking train. This ge locomotive can tell you exactly where it is, what its carrying, while using less fuel. Delivering whatever the world needs, when it needs it. After all, whats the point of talking if you dont have something important to say . Welcome back. Some might call yesterdays nasdaq fiasco a nightmare for nasdaqs executives. Our next guest wrote nightmare on wall street, knight mare with a k about knight capitals glitch. Edgar perez is the author and he joins us at post 9. Thank you. How would you characterize yesterdays event versus what happened with knight . Its a big difference. In this case were looking at a change in nasdaq that is supposed to provide a fair market for all participants. Knight was one company. 461 million, they satisfied that price for the other investors. But in the case of nasdaq, its surprising to me that this is a company that actually is supposed to provide a fair market to everybody and was not able to provide so, and the explanation doesnt really satisfy me. I listened to greifeld today in the morning and he said he had some information right, but he got the information wrong for the consolidated to all Market Participants. Its surprising he has access to both sides, one is okay, one is not okay. His argument is liability is limited because everybody was at an equal disadvantage. Do you think thats true . How much will they suffer because of this, whether its class action lawsuits, penalties from the s. E. C. , loss of market cap . A combination of all of those things 12 things . I think the market was closed for almost three hours is an indication also theres going to be sop liability there for nasdaq. Remember, we have it was proposed, it wasnt really applied. Had that been proposed it probably would be more expensive. They will fined still 10 million last year with the facebook ipo. You have been writing about some of the problems with High Frequency trading for years now. Is it your view that the existence and the rise and importance of these systems has become enough of a problem that something more should be done about it here across the exchanges . More should be done, indeed. As you know, the proposal from the s. E. C. To regulate changes on Market Participants to provide technology that actually responds, right now its more important than ever, and i think the s. E. C. s leadership is lacking. It was lacking yesterday. We need to see them more active. Some argue the s. E. C. Trying to address this rule is part of the problem because for every new regulations introu deuced, it creates the inintended consequences. In this case perhaps of fragmenting markets together. What do they do to put the genie back in the bot. If you think about the automobiles that were introduced 100 years into the systems, people thought there would be accidents. We have to have regulation in place, insurance, we have to have people to control that. I think that probably helped some people make things more expensive. In the end were minimizing the damage. When in the 60s the big board was closed up to so the book keepers could catch up, thats not relevant anymore. Its not apples to apple approximates. This is not nyse versus nasdaq. This is the u. S. In the global markets. Were competing it shanghai and singapore. Thats what were losing. The u. S. Has to do erg to maintain its prominence. What is the view outside our borders . The view is of course, theres admiration for the u. S. , of course. When i travel around asia or europe, thats what i hear. Nonetheless, we have to protect that. Obviously nasdaq, facebook, you see nyse, now its not helping. I think thats something the s. E. C. Has to take matters more seriously. We start the show every morning saying from the Financial Capital of the world. We want that to remain the case. Author of knight mare on wall street. The annual symposium in jackson hole kicking off. We consider a disappointing new home sales report we got. Well go live to that meeting. Plus, the bell is about to sound across europe. A couple minutes left to go in europes trading day. Well get you details on the close when we come back. 20 years with the company. Thousands of presentations. And one hard earned partnership. It took a lot of work to get this far. So now im supposed to take a back seat when it comes to my investments . Theres zero chance of that happening. Avo when you work with a schwab financial consultant, youll get the guidance you need with the control you want. Talk to us today. [ male announcer ] the parking lot helps by letting us know whos coming. The carts keep everyone on the right track. The power tools introduce themselves. All the bits and bulbs keep themselves stocked. And the doors even handle the checkout so we can work on that thing thats stuck in the thing. [ female announcer ] today, cisco is connecting the internet of everything. So everyone goes home happy. We have some action on gold today. For a look at that, lets get out to courtney reagan. Hey, court. It was a quiet morning for gold until we got that report on new home sales and we saw gold prices spike higher. Gold bugs remembering the feds mantra about weak Economic Data and what that could mean to the stimulus program. Were seeing buyers come into gold spiking up just under 2 . Also, those interviews out of jackson hole making some gold traders believe that tapering is not on the table in september. Also whats going on over there in the middle east giving support to prices as we aim towards 1,400. Were seeing gold sit at twomonth highs. The most active mover in the commodity complex. If you look at crude oil, we saw a spike up when the dollar weakened, and we saw the yields on the treasury fall. Thats where were getting the support there. Its basically Just Movement following our other indices. Thats what traders are saying right now. Remember that the volume down here is very light on a summer friday. So these moves can kind of be exacerbated even on Little Things like that. Last but not least, take a look at whats going on in the rbob gasoline. We got a drawdown in the supply earlier this week. There are some refinery problems at a canadian refinery called st. Johns. Thatsing what goi whats going rbob market there. Thanks very much for that. As we pivot back here and keep an eye on whats happening with the stock indexes, the dow is up five points, small gains for the nasdaq and s p. We saw a leg down after the new homes report but the real action was in the tenyear. That moved all the way back down to 2. 8 as people are debating what the fed is or isnt going to do. We used to think going from 2. 92 to 2. 9 in a day was impossible np n impossible. Not anymore. And the move has been one of the sharpest in history. The volatility has dramatically increased. Well see how the afternoon session looks after europe closes. What a coincidence. Lets look at the trading session in europe for you. Shares are broadly higher. Growth figures from the uk pushed the ftse up. Now, consumer morale in the eurozone improved by more than expected. It hit its highest level in two years. As a result you can see the cac in france adding a third of a percent. A third of a percent for the dax as well. The pound a little weaker. Its had a big move and a lot of people who were surprised by the dollars weakness reminded that its more of an impact from the stronger euro stronger pound, stronger yen to some extent. A lot to come next week. No doubt about that. Lets get to josh lipton and see what else is moving down at the big board. Carl, yeah, it is a friday summer session here, but theres been some interesting moves if you look at those major indexes. You pull up a dow intraday, you will see youre up for a second day, but youre down for a Third Straight week. Its really big oil, exxon, chevron, thats been weighing on the blue chips. You can see there was an intraday drop after the new homes data. The yield on the tenyear falling on that worse than expected new home sales data. Economists will tell you that data point is volatile, its subject to big revisions, but it certainly also doesnt square with that bump you saw in Home Builders sentiment. You look at the Home Builders and theyre certainly reacting at that. You can see toll and dhi. Also check out the itb, the Home Construction etf. You pull up a twoyear chart, you would see you bottomed in 2011, hit your peak in may but down about 19 since then. So just shy of a bear market. Obviously those fears of rising rates and what its going to mean for that industry. Whats working today . You can look at those rates sensitive sectors. Thats the rmz, the dju, the reits and utilities. I want to end on the retailers. I know you have been talking about this. Certainly aro, q3 profit loss. The street was looking for a profit and thats dragging others down. Aro at multiyear lows. An ugly morning for sure. Lets get inside on the markets and the big news about microsoft with jordan posner. Jordan, we understand you guys own about threequarters of a million shares of microsoft, one of your top ten positions. What do you do with it here . We think the move in the stock is appropriate. Theres going to be more change at microsoft and we think that is a positive. The change in management, if a new ceo comes in and does the right thing by shareholders, has a lot of firepower to reward shoelders in an important way, that can drive the stock much higher. I dont know that we chase the stock right here today, but we think the stock could probably move up to the 40 range, perhaps into the low 40s, and that would be on the back of microsoft more effectively focusing on costs and more fek at this ll lly effectively utilizing its strong Balance Sheet. Maybe Something Like what ibm has done over time. Jordan, are you then advocating as some of the other shareholders might that microsoft use that cash pile, borrow against it, and pay it back in the form of dividends or buybacks . Clearly, theres a lot of unused Balance Sheet strength that can be used more effectively to reward shareholders. Yes, we think they have the capability both to invest in their own business but also to reward shareholders along the way. You know, a cuompany even microsofts size, doesnt need 60 billion to hoard on the Balance Sheet. Do you think a change in management at the top gives them any more mojo in hardware . Because it has been one long, painful process watching these guys try to make a dent in that area. Its been a problem area for a long time, and theyve been trying to work against that. Clearly xbox is a separate issue and over a long period of time thats worked out. A change in management can, especially if the new ceo is focused on hardware and has an understanding of how that business can work more effectively, can make that more meaningful. You know, some people suggest that perhaps you actually wind up breaking up the company or dumping the hardware business, you know, into the can because it will be a long time until you get a return. I think either of those actions is probably too much. But they can be successful in hardware. It will just take some time. Jordan, im not hearing from you im sorry. I was just going to say im not hearing from you that this Company Needs to make the kind of strategic changes that some of the other analysts have been pushing for saying microsoft has to be careful because theyve already missed the boat on a lot of changes in technology. They have. I dont think theyre out of the running forever. In hardware especially, it may take a long time, but theyve got the resources essentially being generated from the Software Business to be able to apply against the hardware business and continue over time. Some of that may come through acquisition. That is a difficult way, but it can make a bigger splash. I think the company does need to rethink hard internally about how they can generate value for shareholders. One way to do that is better application of the cash and a way to do that is through dividend and share repurchase. All right. Jordan posner joining us this morning with his thoughts on microsoft shares. Again, one of his Major Holdings there. Jordan, thanks. Pleasure. Are video games back . Game stop reporting a strong Second Quarter and boosting its profit outlook ahead of new consols from sony and, yes, microsoft. Well take a closer look at the next step for video games with the companys ceo paul raines. He will join us in just a couple minutes. Dont go anywhere. The most free, customizable charts, powerful screening tools, and guaranteed 1second trades. And at the center of it all is a surprisingly low price just 7. 95. In fact, fidelity gives you lower trade commissions than schwab, td ameritrade, and etrade. Im monica santiago of fidelity investments, and low fees and commissions are another reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. A quarter million tweeters is beare tweeting. And 900 Million Dollars are changing hands online. Thats why hp built a new kind of server. One thats 80 smaller. Uses 89 less energy. And costs 77 less. Its called hp moonshot. And its giving the internet the room it needs to grow. This is gonna be big. Hp moonshot. Its time to build a better enterprise. Together. See, i knew testosterone could affect sex drive, but not energy or even my mood. Thats when i talked with my doctor. He gave me some blood tests. Showed it was low t. Thats it. It was a number. [ male announcer ] today, men with low t have androgel 1. 62 testosterone gel. The 1 prescribed topical testosterone replacement therapy increases testosterone when used daily. Women and children should avoid contact with application sites. Discontinue androgel and call your doctor if you see unexpected signs of early puberty in a child, or signs in a woman, which may include changes in body hair or a large increase in acne, possibly due to accidental exposure. Men with Breast Cancer or who have or might have prostate cancer, and women who are or may become pregnant or are breastfeeding, should not use androgel. Serious side effects include worsening of an enlarged prostate, possible increased risk of prostate cancer, lower sperm count, swelling of ankles, feet, or body, enlarged or painful breasts, problems breathing during sleep, and blood clots in the legs. Tell your doctor about your medical conditions and medications, especially insulin, corticosteroids, or medicines to decrease blood clotting. In a clinical study, over 80 of treated men had their t levels restored to normal. Talk to your doctor about all your symptoms. Get the blood tests. Change your number. Turn it up. Androgel 1. 62 . Welcome back. We want to get you straight out to the nasdaq. Simon hobbs joins us with more on that you are troubleshooting. Hi, kelly. Were beginning to get more information from people familiar with the matter about what exactly is going on behind the scenes here at nasdaq. Clearly, theres a postmortem under way. We knew that was going to be the case today. Not just here but across the data centers, across the country, and theyre focusing on the s. I. P. , the security information processor. Remember, this they describe it as a utility that gives price information to all the other 13 exchanges. Thats the focus and the focus is why did it go down yesterday when one Market Participant was connecting and reconnecting . In other words, sending waves of data intermittently into it and out of it and, therefore, that caused it to fail. Interestingly, these sources will not deny again that it was the New York Stock Exchange arca system. Theyre standing by the decision to halt the trade. Theyve spoken to the regulator twice yesterday and today, and the regulator they say, the s. E. C. , is most interested in that decision to halt and why you had to have 191 minutes and they would explain its about not just sorting out what had happened, but getting the system back online. Interestingly, they say the halt was, and theyre repeating this internally, theyre repeating the idea that the halt was to unsure that ordinary traders, people at home, retail traders, longterm traders or investors, had as much information as would highfrequency traders or some of the big investors because they have their own proprietary feeds. They dont necessarily have to rely on the s. I. P. So they say its about keeping an even playing field, and one more thing that the sources are telling us, and i think this is the most interesting. Theyre going to ask the s. I. P. Committee of all 13 exchanges that have to vote unanimously on changes how they want to move forward with investing in the s. I. P. To protect it next time or creating a mirror s. I. P. That can stand there as a backup. In other words, these sources are suggesting, again, hey, this is a s. I. P. Problem thats run by a committee of exchanges. This isnt, guys, a nasdaq problem. Back to you. Yeah. Well, the fact there was no redundancy in the first place has taken some by surprise. Simon, great stuff. Thank you very much. Lets move to shares of game stop which have been on a tear. The company raising its 2013 earnings forecast yesterday counting on new consols from microsoft and soapy to boost Holiday Season spending on video games. Here for a cnbc exclusive is the ceo of game stop, paul raines. He joins us from texas today. Paul, its great to have you. Welcome back. Great to be with you again, carl. Catching you on an interesting day with ballmer announcing hit retirement. I know the xbox is in the boxes, its heading to shelves soon, but does that announcement raise any uncertainty in your business . I dont think so, carl. You know, were the largest partner for Microsoft Xbox in the world. We do close to a billion dollars of revenue. We sell probably one of every two titles sold in the United States on an xbox. So we know microsoft well. That strategy is pretty well set. Theyve done a great job of planning out the launch and i think were locked and loaded. It certainly is interesting to see whats going on but i think the xbox business will do very well this fall. Really quickly one more on microsoft, what do you want to see in a successor as that Search Committee gets to work . Well, i will tell you, the ceo job is a challenging assignment in any company, but i think the most important thing for any ceo in the Technology Space like we are is to drive a high rate of internal change, to make sure your Company Stays on the leading edge. At game stop, we have embraced digital and mobile businesses very aggressively and we will have over 1 billion in those areas and those are businesses that didnt exist a few years ago. I think thats what microsoft is faced with, that kind of a challenge. Yeah. What you have done with mobile is pretty amazing. That said, with the comps declining, i wonder, we all know that ahead of a new product introduction, a new consol, you would expect comps to come in. Is this standard . Anything surprising about what the comp zs in the quarter . You know, not really, carl. We, of course, are digging and have been digging very keep around new businesses to drive volume and cost controls, but when you look at a consol cycle, and weve been through five or six of them at game stop, this is the behavior at the tail end. Fortunately our forecast for q3 is a double digit comps. Weve done promotional things to let customers trade in old products to buy the new products. Well continue to do so in the back half of the year. You know, paul, you were at home depot for eight years, at game stop for at least as ceo for three. Microsoft is looking for a ceo. Would you be interested . I have my hands full at game stop. We are a unique digital and hybrid transformational story thats a heck of a lot of fun and i love it right here in grapevine, texas. How big of an impact have buybacks had on our companys share performance, on your earnings performance . Last july you were under 20 bucks a share and now youre over 50 i think if i have gotten that right. So there, of course, has been some turnaround within the company, Consumer Habits are changing as well. You guys have been pretty aggressive on the buyback front. We have been, kelly. And capital discipline is very important to us. I think that obviously you have to focus on growth, on innovation, as we have with digital and mobile, but its also important for shareholders to see that youre committed to returning Free Cash Flow to them. You know, weve said that absent other large opportunities, we will return all of our Free Cash Flow to shareholders. We bought back 1. 2 billion of our shares. Eliminated all our longterm debt and initiated a dividend. We think thats important, and we will continue to do so. I think that many times buybacks are seen as a way to sort of manipulate the earnings or change the numbers. What they really are is a return of cash flow to shareholders, and its a way to retire your equity from the market that you think is undervalued and, of course, our average price is around 21 bucks and were trading today above 50. I think we made some good decisions. Paul, everybody is anxious to see how battlefield 4 does, grand theft auto 5, these are big names, especially you could argue for a teen consumer. Weve not heard good things about the teen consumer in the past few days, mostly on the apparel front. Do you think thats something going on with that consumer space that we need to be worried about in the coming couple quarters . You know, its hard to say, carl. Certainly there might be a rotational piece going on as innovation returns to consol gaming. We certainly see great momentum around the new consols. You know, we mentioned on our call yesterday, our reservations activity is very strong. Our new title reservations are very strong. Im headed to las vegas tomorrow to our annual manager and customer show, and im going to be with 5,000 raving game stop managers and probably over 3,000 customers, of our best customers. Well be seeing all that innovation in action. I think youre seeing our space probably taking a significant share of wallet as the innovation returns, but hard to say whats going on in the apparel space. There will be some, paul, as well who look at this and say given the surprisingly Strong Performance of these new devices and the innovation youre talking about, they take a profit and they say theres no way game stop can keep growing and continue to match this performance and grow on it to the same degree next year. What would you say to them . Well, i think if to those who have done the work, many of our investors are deep divers and theyve been richly rewarded for understanding our story. Game stop only 4 1 2 years ago was a 100 physical console gaming retailer. Today we are what i call a hybrid retailer of digital and physical merchandise operating in the gaming and mobile space in 15 countries around the world. So i think our Growth Prospects are not as tied to console gaming as you might think. Having said that, we do see very strong growth in the console business for the next several years as this product comes in. So i think investors who take a deep dive and do the work will see that game stops prospects are strong for a significant period of time Going Forward. Its going to be an interesting fall. Thank you for coming back. Well see you soon. Thank you, carl. Take care. Paul raines with game stop. Some of the top names in the economic world gathering in jackson hole, wyoming, this weekend, and well take you there live for an inside look at what might the future of the economy be. Thats coming up next. In a world thats changing faster than ever, we believe outshining the competition tomorrow requires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. We head now to jackson hole, wyoming, where central bankers have come together at the annual symposium to discuss the global economy. Our own Steve Liesman, what a job hes done over the past few days, is there with a special guest. Hey, steve. Carl, thank you. Im here with a guy i have been trying to get on camera for a number of years and, finally, in the last year of his term at the bank of england, hes going to be hes agreed to sit down with us. Charlie, thanks for joining us. Always nice to be here. People should know charlie is recognized as one of the Monetary Policy experts in the world. We have heard a couple papers on quantitative easing, whether or not it works. Whats your takeaway. I thought particularly the one we have just heard was very interesting because its trying to dig down into the detail mechanics of how it works. When people like the fed and ourselves started doing quantitative easing we had a few that it would help signal that were going to keep rates low, also that it would encourage people to rebalance their portfolios, and the paper this morning was Digging Deeper into the channels of how that portfolio rebalancing channel works when we buy government securities. How the people that sold them to us then respond. I thought it was very insightful. Are you more resigned to the policy or less resigned . Do you think that banks should be doing this more or doing it less given the research weve seen . I think one of the key things, were learning more about how they work which means we can taylor them better when we need to use them in the future. As it happens, the bank of england is not at the current juncture buying assets. Its been some time since we ceased the latest program of asset purchases. But weve said that wed be willing to start repurchasing again if Economic Conditions dictated. So if we saw a big slowdown in the eurozone or Something Like that, we might feel that wed need to restart purchases. But at the moment were not. Another critical tool thats been much discussed is this issue of Forward Guidance, and you guys well, the governor of the bank of england, mark carney, did it recently, and the market didnt seem to like it very much. Whats the status of Forward Guidance in the uk right now . Well, i think the first thing to say is that what we announced in august was an evolution of where we were in the past. All Central Banks always want the markets to understand how policy is being set and, if you like, in the jargon our reaction function. But in the past the bank of england has tended to say it in words, if you like, and not be very concrete, very explicit about the nature of how policy will be set Going Forward. And one of the things that mark was particularly keen for to us do was to explore the idea that we might give more explicit guidance Going Forward. I think theres a strong argument saying its value might be greatest when youre heading to the exits. After the collapse of leman, everybody knew we were going to keep policy loose for a long time. They dont know how quickly were going to withdraw the stimulus. So clear guide sense, we think, useful, as you might be moving towards exit. Now, we think quite a long way from actually wanting to start timing policy. Theres two views i have heard inside there. One is that limited effects of quantitative easing, but then when fed chairman ben bernanke gets in front of the podium and he says were going to be exiting, a massive effect from the potential of quauiwithdrawi. Does that make you think theres more power to what the central bank has done than originally estimated . I think what weve seen in response to concerns about tapering here has actually i think made us realize how important Clear Communication is going to be Going Forward. There is a danger markets misunderstanding how policy might be set Going Forward. Given Economic News is always uncertain, we dont know how strong growth is going to be Going Forward and so forth, theres no way we can tie ourselves into a particular rate path, but at least saying what factors determine when you might be changing bank rate Going Forward might help. Chairman, one thing i have noticed, theres been a bunch of Research Papers on the effect of u. S. Qe on foreign rates. Yeah, yeah. Does that befuddle you . Is it a cause of concern that in a sense so much of your rates over there and your economic outcomes are tied to whats decided in washington . I think thats inevitable in globally integrated Capital Markets. Youre going to get these spillovers between countries, and uk government bonds, theyre reasonably close substitutes in portfolios for u. S. Treasuries. Its not surprising to see a degree of synchronicity. We havent been all that surprised at whats happened to the long end of our own yield curve as things have unfolded here, but what we have wanted to make clear is that the short end of the yield curve, which are is something you only control. We control. Im running out of time. Very quickly. A quick outlook for growth in the uk . Will it be a better year and will next year be better sure . Were pretty certain this year will be better than last year. Weve seen growth pick up to not far short of its historical trend rate. We just had a revised release of the Second Quarter figures. 2. 5 as you guys say it. Thats about our historical average. The business surveys all suggest thats likely to continue in the second half of this year. So were pretty confident that were out of this long period of pretty flat output that weve seen for the last 2 1 2 years or so. Charlie, thanks so much for joining us. Youre welcome. And well see you hopefully again soon. Is that back to carl in the studio . Yes, sir. Great work, steve. Safe travels back home. Well see you soon. Our Steve Liesman in jackson hole. Dow is up 11. Housing bears roaring back today. Well explain when we come back right back. You think about risk. I dont like the ups and downs of the market, back. It on my cash. It on my cash. I want to be prepared for the long haul. Ishares minimum volatility etfs. 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